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New FINMA Head Wants To Regulate Shadow Banks

New FINMA Head Wants To Regulate Shadow Banks

الأربعاء, يونيو 12th 2024

Stefan Walter, the new head of FINMA, advocates for tighter regulations on shadow banks and early intervention powers to prevent financial crises.

Keystone/EPA/JIM LO SCALZO

The new head of FINMA, Stefan Walter, advocates for stricter regulations on shadow banks and enhanced supervisory powers for early intervention. At the Bundesbank Symposium in Frankfurt, Walter emphasized the need to regulate bank-like credit intermediation outside the traditional banking sector.

Shadow banks conduct similar activities to banks but are less regulated. Walter highlighted that banks established and financed the shadow banking system, contributing to past financial crises. He suggests that the Bank for International Settlements (BIS) collect global data on non-bank credit intermediation, addressing a significant data gap.

Walter proposes adapting regulations to include bank-like lending outside the banking sector to prevent future crises. He also noted the growing connections between banks, private equity companies, credit funds, and crypto companies, which require closer scrutiny.

Walter reiterated the need for FINMA to intervene early and rectify irregularities, focusing on issues in risk culture, governance, and business models. He identified “red flags” such as incompetent boards, dominant CEOs, and disrespect for regulations as indicators of potential problems.

Walter emphasized that regulators need to adapt to evolving financial landscapes. He mentioned that indirect regulation tried after past crises, like LTCM and Archegos, was insufficient. He advocates for more direct approaches to effectively manage risks associated with shadow banking and other non-traditional financial entities.

By addressing these issues proactively, Walter believes that financial regulators can better safeguard the stability of the financial system and prevent crises before they escalate.

© Keystone/SDA

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